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Strategies to Drive Procurement Compliance and Manage Rogue Spend

Published June 1, 2020

Written by: Dan Anzevino
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Dan Anzevino

Dan Anzevino is a leader in driving the growth of Group Purchasing Organization usage outside of the Medical Industry as Executive Vice President and the Chief Operating Officer of CoVest Sourcing Network.  Prior to joining, Dan worked with private equity and independent clients in an advisory capacity.  His background at A.T. Kearney formed the foundation of his supply chain and purchasing career. Throughout his tenure at CoVest, Dan has driven the company from 8 members in 2011 to over 60 members today with a total combined revenue of over $500 billion.  His leadership in creating detailed savings analyses, and crafting new and innovative category offerings, has added significant value for CoVest members.  The approach to category management that CoVest has built ensures that the members retain solid pricing every year and create additional savings as the group gains additional leverage, new service offerings and a continued focus on analytics.  

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Compliance is a critical purchasing success factor. Aside from the tremendous amount of financial impact, compliance has other positive outcomes. When employees comply with purchasing through designated supplier programs, it significantly streamlines the supply chain, allowing your organization to be agile and flexible.

 Pairing the right supplier with their areas of expertise enables employees to quickly connect the right program for their needs at a discounted rate. It helps reduce unnecessary steps, deliveries, downtime and eliminates unneeded time searching for products. Additionally, it provides a line of sight into the supply chain to ensure that suppliers are properly vetted, reliable, and deliver quality products on time.

When higher compliance rates are achieved within purchasing, there are benefits throughout the entire company and continuous savings. However, regulating company spend and managing rogue purchasing is an ongoing, and at times daunting, task for procurement professionals.

Ways To Drive More Compliance

When strategizing ways to achieve more compliance within your company, there are some essential components at a category level that enhance adherence to your new program. While it is likely you are already making some effort at each one of these steps, it is critical to have a comprehensive approach to manage rogue spend and achieve greater compliance.

Communication

Communication is key in driving purchasing compliance, not only at the corporate level but companywide. You will not have full cooperation without properly conveying the importance of company and category goals. Aligning purchasing habits within a new supplier program will help address rogue spend. However, communication efforts shouldn’t begin and end with the supplier implementation process.

Every employee who can impact compliance should be kept up to date beyond the launch of the program. That means your C-Level contacts and the end-users at the facility level should all receive communication and follow-ups throughout the life of the program. We begin well before a program has launched by pulling in necessary stakeholders and notifying all category users that the program launch is imminent. Most companies communicate the program launch well, but then consistent communication and additional educational content for end-users quickly tapers off. Instead, an advanced communication approach continues category education over the entire life of a program.

Program Design

Understanding the critical needs of users today and three years from today is quite a task. Pulling input from as many stakeholders as possible upfront will aid in understanding why they will (or won’t) fully utilize a program. Every category is different. Are a few essential items critical? Or is the category going to consistently churn? Your agreement needs to ensure that the first time an item is priced, that has never been purchased before, strikes users as the right option. Seeing a bad price on an item, no matter how insignificant in the overall scheme of the category, can have a deleterious effect on compliance in many categories.

Reporting

The best way compliance goals can be tracked and measured is through clean data and advanced reporting. In order to get a full line of sight into the supply chain without straining your own resources, is to tap your supplier for solutions to provide inventory management specialists or seek third party assistance from a GPO which can provide enhanced analytics and streamline supplier data. These resources will reveal spending patterns, inventory issues and rogue spend that should be designed back into the program.

There are two types of reporting, which are essential post-launch: compliance reporting and long-term savings reporting. Compliance reporting should be frequent, start soon after program launch, and create visibility to both site and subcategory purchases relative to expected activity levels. Reports should be frequent early in the agreement, but should also be revisited periodically throughout the agreement. Savings reporting should occur regularly, and users should see the actual savings on a regular basis over the entire course of the contract (not just the first year).

Non-Category Level Compliance Drivers

There are several other factors that apply to the entire purchasing regime that also aid in the path to compliance nirvana.

Technology

The technology used when purchasing can make a significant impact on compliance. Whether it’s a P2P system integration or portal on the supplier website, it is vital for employees to understand the preferred path when purchasing. Make it easy by having the supplier’s eProcurement solution integrated with your P2P system to increase compliance. Provide information companywide about supplier changes or post purchasing guidelines on your company’s intranet for all employees to access.

If purchasing systems are not cohesive or vary at the site level, consider utilizing a login portal for the supplier site for purchasing. Provide employees with an easy user-guide, host a webinar, include information in an internal newsletter and highlight the supplier’s mobile app to make it easy for employees to use it on the go. Harness technology and get employees connected digitally to create a smooth user experience and more adoption of your supplier program. To achieve greater compliance, some companies go to the extent of blocking outside supplier websites to ensure that rogue spend is controlled.

Executive Support

While we cannot expect to have unflapping co-communication throughout our supply chain, there are a few key areas that we have identified to get everyone on the same page. Develop and communicate clear compliance expectations to everyone involved in the purchasing process. Ideally, this message comes from the right executive in your organization. Another key point for sponsorship is right before category launch having at least one executive sign-off or even send the communication that a new program is on the way to gain companywide support.

Incorporating these essential steps into your business model will help address rogue spend at multiple levels within an organization. Keeping employees well informed, utilizing technology to streamline purchasing and advanced reporting capabilities are critical components to driving compliance, managing rogue spend, and building lasting savings for your company.

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